Looking ahead to 2019

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Dorian Wragg, Bruton Knowles’ Partner and Commercial and Property expert, looks ahead to 2019, sharing his thoughts on the key areas that will impact the property sector:

Energy

Without doubt, the energy sector will grab headlines in 2019. Governments’ energy policies will be under scrutiny with some claiming that such policies lack clarity and are in disarray. The focus still appears to sit with low carbon priorities so how will this affect other energy sectors such as renewables, hydro power, gas exploration and even nuclear power? Can local and central government get their support for the energy sector as a whole on a more balanced and even keel? For example, in 2018 hydro power projects in Wales were encouraged with grants for 100% rates relief but later figures indicate that 92% of businesses running these projects have subsequently seen an increase in their business rates, some by as much as 900%. Can we afford to cause confusion and doubt in this essential sector?

Retail

With large high street retailers on the back foot and the growth in online retail unlikely to slow in the short term there are significant shifts in the retail property market that will continue into 2019. The most obvious changes will be quick to spot – empty premises and changing street scenes in towns and cities. Landlords will be advised to heed advice and take proactive steps to attract and secure a new breed of tenants – office and retail – smaller in some cases, boutique in nature, an immersive shopping experience, and established niche brands tempted into the high street for the first time – but all requiring more flexible tenancies but with no compromise on connectivity. The focus will shift to explore the issues around making the process cheaper, more accessible and less wrapped up in red tape for new retail tenants.

This represents a new challenge within the property sector as savvy agents look to seek out the hidden gems in the cities, so these up and coming boutiques can make their mark on the UK’s cities.

Offices

The concept has been around for some time, and generally perceived to be adopted by forward thinking businesses, but co-working spaces will become a bigger story in 2019. Public and private sector organisations of all sizes are contemplating what space they will need and how their workforce best fits that space. However, planning and investing in co-working spaces should not be underestimated and not considered a cheap option. Thoughtful design and super connectivity should be at the heart of the plan to ensure that evolved co-working spaces are attractive and comfortable places to be.

Equally, we are already seeing a growth in demand for smaller and serviced office space that could see a resurgence in 2019 of creative or working hubs housing complementary businesses and services.

Logistics & Transportation

The sector debate about the appropriate location for distribution hubs will continue into 2019. Regions are no longer courting these hubs as robustly as they were, particularly as they have proved to be low volume employers and have a less positive impact on local economies. Now, regional inward investment teams are targeting high tech manufacturing businesses from start-ups to relocators.

So, the question now is where should these large hubs be located? Are our ports logically the most efficient location for them and if so, what investment in infrastructure will be required and will the construction of the HS2 line form part of that debate?

Looking at the industrial sector, we’re likely to see increasing interest from developers in the intensification of sites consisting of multi layered distribution sheds. Segro’s X2 building in London is the perfect example. Based next to Heathrow and the M25, the site offers a wide range of different sized units with easy access for large vehicle. We can expect to see interest in this type of offering increase in 2019, although debt finance will prove difficult to secure from increasing risk adverse banks.

With the majority of banks now taking a negative approach when reviewing construction and property funding, many projects which cannot be well proven are being declined, with only self-financed or lowly geared opportunities working to move ideas forward. Going forward, councils may have the opportunity to step in financially, helping to de-risk properties before selling them on to commercial landlords. Politically it may work in their favour if they are seen to be regenerating tired urban fringe trade counter sites rather than acquiring new, costly investment properties.

We’ll also see a rise in the number of mixed use development schemes. These sites blend residential, commercial, cultural, institutional, or entertainment, where those functions are physically and functionally integrated, and provide pedestrian connections. Travis Perkins space in Kings Cross which launched earlier this year is a good example of this, comprising space for builder’s merchant together with innovatively designed student accommodation.

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